Aviva 2013 Annual Report Download - page 172

Aviva plc
Annual report and accounts 2013
170
Notes to the consolidated financial statements continued
24 – Loans continued
The movements in the impairment provisions on these loans for the years ended 31 December 2012 and 2013 were as follows:
2013
£m
2012
£m
At 1 January (128) (94)
Increase during the year (30) (45)
Write back following sale or reimbursement 3 2
Write back following recovery in value 4 9
Foreign exchange rate movements — —
At 31 December (151) (128)
(c) Collateral
The Group holds collateral in respect of loans where it is considered appropriate in order to reduce the risk of non-recovery. This
collateral generally takes the form of liens or charges over properties and, in the case of policy loans, the underlying policy for the
majority of the loan balances above. In all other situations, the collateral must be in a readily realisable form, such as listed
securities, and is held in segregated accounts. Transfer of title for the collateral received always occurs in such cases, although no
market risk or benefit is taken. In the event of a default, the Group is able to sell or repledge the collateral.
The amount of collateral received with respect to loans which the Group is permitted to sell or repledge in the absence of
default was £5,513 million (2012: £4,560 million). No collateral was actually sold or repledged in the absence of default during the
year (2012: £nil).
25 – Securitised mortgages and related assets
The Group, in its UK Life business has loans receivable, secured by mortgages, which have then been securitised through non-
recourse borrowings. This note gives details of the relevant transactions.
(a) Description of current arrangements
In a UK long-term business subsidiary, Aviva Equity Release UK Limited (AER), the beneficial interest in certain portfolios of lifetime
mortgages has been transferred to five special purpose securitisation companies (the ERF companies), in return for initial
consideration and, at later dates, deferred consideration. The deferred consideration represents receipts accrued within the ERF
companies after meeting all their obligations to the note holders, loan providers and other third parties in the priority of payments.
The purchases of the mortgages were funded by the issue of fixed and floating rate notes by the ERF companies.
All the shares in the ERF companies are held by independent companies, whose shares are held on trust. Although AER does
not own, directly or indirectly, any of the share capital of the ERF companies or their parent companies, it has control of the
securitisation companies, and they have therefore been treated as subsidiaries in the consolidated financial statements. AER has no
right to repurchase the benefit of any of the securitised mortgage loans, other than in certain circumstances where AER is in
breach of warranty or loans are substituted in order to effect a further advance.
AER has purchased subordinated notes and granted subordinated loans to some of the ERF companies. In addition, Group
companies have invested in loan notes issued by the ERF companies. These have been eliminated on consolidation through offset
against the borrowings of the ERF companies in the consolidated statement of financial position.
In all of the above transactions, the Company and its subsidiaries are not obliged to support any losses that may be suffered by
the note holders and do not intend to provide such support. Additionally, the notes were issued on the basis that note holders are
only entitled to obtain payment, of both principal and interest, to the extent that the available resources of the respective special
purpose securitisation companies, including funds due from customers in respect of the securitised loans, are sufficient and that
note holders have no recourse whatsoever to other companies in the Aviva Group.
(b) Carrying values
The following table summarises the securitisation arrangements:
2013 2012
Securitised
assets
£m
Securitised
borrowings
£m
Securitised
assets
£m
Securitised
borrowings
£m
Secured mortgage loans at fair value (note 24) 2,169 (1,493) 2,218 (1,515)
Other securitisation assets/(liabilities) 301 (977) 351 (1,054)
2,470 (2,470) 2,569 (2,569)
Loan notes held by third parties are as follows:
2013
£m
2012
£m
Total loan notes issued, as above 1,493 1,515
Less: Loan notes held by Group companies (180) (183)
Loan notes held by third parties (note 50 (c)(i)) 1,313 1,332